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SIP is growing quickly, but it still has a long way to go before becoming the dominant trunking technology.

SIP is growing quickly, but still has a long way to go before becoming the dominant trunking technology.

New data released by Infonetics Research last week showed that service providers' SIP trunking revenue grew 128% in 2011, making SIP one of the fastest-growing voice services in North America. At the same time, the firm found that SIP still isn't close to being the No.1 trunking technology as it accounted for less than 10% of trunks deployed on the continent.

In this question-and-answer session, we'll talk with Infonetics analyst Diane Myers to get her take on what's driving the accelerating adoption of SIP and what it will take to make the technology the go-to solution for trunking.

As you've reported, SIP trunking revenue was up 128% year-over-year in 2011. What has been driving this trend?

The people who are adopting SIP trunking are the people who have upgraded their infrastructure recently and have adopted an IP PBX that supports SIP. The other big reason they're adopting SIP trunking is that they're looking to centralize their trunking assets.

If you're doing lines across multiple sites and you have to buy dedicated connections to each of those locations, then you have to buy a certain number of minimum channels. In SIP trunking, on the other hand, you could buy a set amount of call capacity and then have it localized to pull that capacity down from a central hub, so you can manage call capacity across multiple sites in a more centralized way. The real benefit of SIP is being able to manage those calls across all locations so you don't have a lot of idle capacity.

All of that hopefully helps you to have lower costs, although that's not the primary driver for adoption. It's a secondary driver that comes out of being able to manage call volume more effectively. But we've also found that if SIP does cost more for some businesses, they're not going to make the switch. If you're a small business with one or two sites, SIP is not always going to be the less expensive option. It really does not pay to adopt SIP if you're a single business.

Despite SIP's impressive growth, you mention that legacy T-1 lines will still be the most commonly used trunking service through at least 2014. Do you think there will be a tipping point where SIP eventually becomes the dominant trunking technology?

What we've found is that even when businesses are using SIP today, it tends not to be for 100% of their capacity. Businesses tend not to do a full conversion to SIP, they may use it for 50% of their trunks for instance. They're still using a lot of T-1s or PRIs, so the legacy technologies won't ever go to zero. They'll start to lessen but they don't go away and a lot of very large businesses are using multiple technologies.

To put it into perspective, we found that less than 10% of trunks and services are SIP trunks today, so there's still a huge install base of these legacy technologies. We're still in a niche adoption phase, and even if we start moving up to 15% to 20% of trunks, there's still a huge install base that has to move. We do know that the market is moving toward SIP, but the tipping point is not going to happen over the next three years. If you talk to large service providers like Verizon and AT&T, SIP trunking is their fastest-growing voice service, but it's coming from a relatively small user base.

What are some of the reasons that companies haven't yet adopted SIP?

There are a couple of big reasons. First, if businesses have done their homework then there is naturally some concern about security, although those concerns can be overcome. Remember that SIP is running over a data network and is an open channel. This is a problem if the service provider doesn't have security or if you don't have your own on-premises security. Last year we saw a medium-sized business with a SIP service with an open connection and there was someone from Nigeria sending a lot of phone calls through their PBX and they didn't know it until they saw their phone bill. In legacy voice we never had to worry about that because we had dedicated circuits and there's no way to hack into a dedicated circuit.

As for other reasons, in some cases a company's service contract isn't up for renewal yet so they don't have the opportunity to switch. It also might not be offered in their location though there tend to be fewer and fewer issues around that. Companies also could be looking to go to hosted services where they don't need a SIP trunking service since SIP trunking is only for on-premises equipment. And lastly, the prices for T-1s and PRIs have come down so users can be completely satisfied with what they have and they don't see the benefit of moving to SIP.

You also mention in your report that the SIP market is sort of a "wild West" right now with no dominant providers despite the presence of big names such as Verizon and AT&T. Do you see the market boiling down to a smaller number of players over the next few years?

Not in North America. We will still have large providers like Verizon, AT&T and Level 3 that go after the large businesses. What we're starting to see now, though, is providers for smaller businesses that are starting to find their way, such as XO and Centurylink. You even have the cable companies getting into that space. There's a wide spectrum of companies and we see that continuing going forward, just as we've seen in the VoIP market.